PER performance objectives No:1 Describe an occasion on which you had to demonstrate ethical behavior. I have already mentioned in my profile that I have been working in an audit firm from last three years. While working in such a field, you have to deal with such situations almost daily where one has to demonstrate the ethical behavior. I would like to highlight one event in this regard. In the initial days of my job, my firm assigned me to an audit assignment in which my best friend was already finance manager. It was creating self-interest threat and I disclosed the matter to the engagement manager. I was removed from that assignment and my ethical behavior was well appreciated by the partners of the firm.
What did you learn from this experience and how will it influence your future behavior in the workplace? People are generally afraid in the audit firms that if you would deny any assignment in the initial phase of your job, you would not get big audits. I was very lucky in this regard as the partners of my firm were ethically very strong. I learned that if you do something correct, everyone encourages you professionally. So never be afraid of doing anything which is ethically correct. I immediately became a bit more important after that for my firm.
Nothing happens to them who don’t disclose such information to the firm and go for such assignment if the matter remains undetected. In our firm, we have to sign off and independence statement that we don’t have any relationship with the company where we are going for the audit, they sign wrong statement. If such matter is detected by the firm, firm takes serious actions. At least the worthiness of that employee is reduced in the eyes of managers and partners.
No: 2 Describe how in your role you have contributed toward effective governance, provide at least two examples.
In Pakistan, along with signing the audit report, auditors have to report on the
application of the code of corporate governance in the listed companies. Where company is not following this code completely or partially, we suggest the improvements in the companies’ system and internal controls. Many a times I suggested improvements in the systems which were honored. I would like to mention two such suggestions which were implemented and had positive impact on the organizations. In one audit, the policies of the management were less oriented to shareholders. In the minutes of the meetings of board of directors, it was observed that some directors were actively raising the issues for the benefit of the shareholders but ultimately their votes did not have any affect on the final decision. The reason behind this was the imbalance between Executive and Non Executive shareholders. Code of Corporate Governance of Pakistan requires the companies to have at least 25% non executive directors in the board. Company was complying with this ratio but we suggested the audit committee to have an equal number of executive and non executive directors to create a balance and have an equal participation of all the stakeholders. Company altered the Articles of Association and included this clause in it. Now, it has been running very efficiently. When directors serve the company, they have every right to get benefits from it. But best practices of corporate governance state that there should be some rules for the remuneration. While auditing the director’s remuneration expense of a major banking company (I cannot disclose the name), I came to know that major portion of the remuneration is based upon the company’s performance which is in compliance with the code of corporate governance. But the barometer selected for this purpose was the annual profit figure. Last year company witnessed 133% profit growth and this year also the profit growth was about 80% of last year. Profit figure is subject to manipulation and can easily be changed significantly by the change of estimates about which is the auditor can do almost nothing. We suggested the audit committee to change the packages of the directors in this regard. Agreements were revised and now the major portion of the remuneration of the directors is based upon the total wealth produced for the shareholders. Now directors are making policies which have better effects in the long run rather than short term profitability. In what ways did you make sure you acted in the best interests of all concerned? I will describe it case by case; In first case, we were feeling that the stake of shareholders and some other stakeholders was not actively considered. Primary responsibility of the non executive directors is to overview and monitors the decisions taken by the executive directors. This responsibility cannot be fulfilled if they are not given powers. For example, company was planning to wipe out a forest to build residential colonies for the
employees. Non executive directors highlighted that Green Pakistan community would actively react against it which will ultimately have bad results in the stock market but they did not have enough votes in the BOD to veto this decision. But maintenance of balance would result in the best interests of all concerned. In second case, we also observed that since the remuneration packages were changed to profitability based, the loan issue rate of the company was increased significantly. The bank was honoring almost every second loan application while the industry rate in this regard is 1 out of 4 applications. There are chances that directors are issuing loans without proper evaluation of the business plan for which the loans were issues. In the first few years, company could earn a lot of profits but resultant there could be a problem of recoverability which would result in the bad debts and liquidity problems. Liquidity problem is something due to which every stakeholder from BOD to employees will be severally affected. Change in the design of remuneration package would result in the less aggressive policies by the management which is very beneficial for the long term growth of the company. What negative impact(s) would have resulted if you had not acted in the way you did? In first case, if this balance was not created, the decisions were not made by incorporating the concerns of all shareholders which could result in lower profits, share value depreciation and active resistance from the social groups such as Green Pakistan community. In the second case, if the directors were continuing this policy, soon the company would have tons of profits without having cash to payoff even the basic expenses. In the long run, most of the profits would need to be written off which could be a disaster for the banking company on such large scale. NO: 3 What experience have you had in dealing with non-financial risk? Audit firm provides services. In any audit firm of Pakistan, only Chartered Accountants who are the members of Institute of Chartered Accountants of Pakistan can be the partners. They are normally financially strong and don’t have to borrow the money from anyone. I won’t be wrong in stating that the 99% of the Audit firms in Pakistan are working on zero borrowing. So the major risk which companies face is non-financial risk.
The major non-financial risk which the firms face is the noncompliance with ethical behavior by the members of the firm. If members of the firm don’t comply with the ethical standards, the credibility of the firm goes on stake; we go against the auditing
standards and the constitution of the country. Apparently it looks easy to minimize this risk but actually it is very difficult because no one can know about all the events and circumstances of the life of every member of the firm.
Using an experience in your workplace explain how have you ensured that the risk was correctly dealt with?
As I mentioned in my first objective, I disclosed the ethical matter to my engagement management so I was able to secure a bit respect in the minds of managers and even partners of the firm. For the purpose of dealing with the above mentioned risk, we started creating a culture of voluntary disclosure. Members of the firm were given detailed instructions to keep alive in their minds what exactly creates a threat to independence and objectivity. They were also encouraged to disclose this information to the firm. One who discloses the information is actually treated to be ethical and receives appreciation from the partners of the firm.
How did your organization benefit from your actions?
The event of disclosure of self-interest threat by me was considered an example. Whenever somebody wanted to promote the culture of voluntary disclosure, he used to give my example.
No:4 What have you learned about how you work as an individual? When I started my job, I was a hard worker but not very punctual in my approach. In audits, one needs to comply with stringent deadlines. I was good in meeting the deadlines but was not a good planner of my work. In the initial days of audit, I used to work lesser than required. Reluctantly, in the last days, I had to do work late at night. But gradually I improved this habit. Now I work evenly all the days of assignment which results in less pressure and burden on my shoulder.
How have you changed your behavior or approach in the workplace as a result of what you have learned? I learned good planning skills. Due to inexperience in the earlier days, I was not able
to project the work properly. If the estimation is not made as required, you cannot plan it appropriately. I realized that planning an audit is very important. When I started planning and working properly, all the pressures and burdens went into air.
How has this helped improve work outputs or business results in your area?
Due to proper planning and implementation of those plans in the actual work scenario, I was able to meet the deadlines easily. It used to give me enough free time to give to my studies. My managers and partners started relying more on me and reluctantly I performed more external audits than any other guy recruited in my badge by the firm.
No:5 Describe situations where you have effectively demonstrated each of the forms of communication mentioned In audits, you have to communicate with different people. Sometimes you are meeting with the directors, audit committee, managers and lower level employees. Communication is an integral part of the audit and without good communication skills you cannot fulfill your responsibilities. In audits, while dealing with the management you have to use oral and written both ways of communication. People like accounts manager and his designated staff remains with you all the time you stay in the company. You have to communicate with them orally and finally some matters are intimated in the written form in shape of initial requirement letter, final requirement letter and management letter. You have to communicate with audit committee through Board Letter. Sometimes you have to reach to a conclusion by not just words but the facial expressions or body gestures of the person sitting in front of you. So in audit life, all the possible communication methods are used. What did you do to help communicate effectively? Initially I worked on my English language. But this is something you learn when you start communication. You pick the good words and styles from others while listening to them. You try to adopt the writing style of the person while you are reading something. In the events of life, you actually meet with different people to analyze how they actually react non-verbally in some events. So there are two things which assisted me to be a better communicator, one is experience of communication and other is striving to be a better communicator. How have your communication skills helped you to improve your performance elsewhere? Your brilliance, talent and skills remain unveiled until you exhibit them. You cannot exhibit anything in an appropriate way until you are a good communicator. After improving my communication skills to some extent, I started teaching Audit to ACCA F8 and Pakistan Institute of Public Finance Accountants (PIPFA). I believe, I could never start teaching without developing the communication skills in my audit life
No:6 Describe your experience of using information technology This is the world of information technology. Now in every field the use of IT is very important. Especially if you talk about the accounting and finance, we have to produce different reports for different users and different purposes. Use of information technology is integral in all these activities. While working in audit firm, one has to go to different clients and use their accounting system. Moreover, we also use different general and particularly designed audit software for the accounting systems in the audit. I feel that the use of IT has reduced the audit work by a large extent. You can identify problems and solve several issues in just mouse clicks for which you need efforts of several weeks if done manually. Moreover, now we use emails as a basic method of communication. Emails are used to communicate with the clients, for communication with the engagement managers and team members. We report on daily basis to the manager about our day’s progress and send the working to him. He electronically signs off the working and sends it back to us.
How have you applied your IT skills to improve your personal performance?
When I started my job, one of my senior told me that the only key to excel in this field is learning and getting command in IT used for accounting purposes for example, getting full command on Excel and other accounting and audit software. Excel is such dynamic software which has the limits of working as your imagination. If you know or search the formulas on this application, work of several weeks can be done in some minutes. Moreover, getting full command in the accounting and audit software also creates a difference between you and any other guy. I tried to learn such things in whole of my job experience which resulted in meeting stringent audit deadlines and increased my worth in front of my managers and partners. How has your IT skills and associated improved performance benefited the wider organization?
In the audit firms of Pakistan, employee turnover is more than any other country. Reason is that they recruit students for training purposes. A student serves them for 3.5 years and than they leave the firm and this cycle continues. I will also leave the firm soon as my training contract is going to complete. I always tried to teach whatever I have learned about IT in my professional life to my juniors who would ultimately be working in my capacity in the future. So teaching anything to juniors is
actually beneficial in the wider stake of the organization.
No: 7 Describe how you have managed the ongoing (business as usual) activities in your role
In audit firms, we go to different audits all over the year and our ultimate objective is to complete the audit within the deadline by ensuring that the quality of the audit is not compromised. Meeting with deadline requires good projection of the work you and your team has to do. If you cannot estimate the amount of efforts you need to put, you cannot complete the task on timely basis. So in the initial days of my job, I realized the importance of planning and working on daily basis in the audit. Now I plan every assignment and start working on it from very first day with full sincerity. Reluctantly, I don’t have to sit till late night in the last days of audit and my managers, team members and client also remains happy with my performance. I also get good time for my studies. Explain where you have recommended your own approach to managing ongoing activities to others and why?
The main complaint of the employees of the audit firm is always late sittings. This is too common in Pakistan and I think it will be the main complaint in other parts of the world as well. Late sittings are the result of poor planning of work. As I plan the work and distribute it in the available number of days and then complete the task on daily basis, it resulted in less late sittings. I recommended this approach to all my juniors so that they manage their work, studies and social responsibilities appropriately.
How does you approach to managing your activities contribute to organization performance?
In the audit firms of Pakistan, employee turnover is more than any other country. Reason is that they recruit students for training purposes. A student serves them for 3.5 years and than they leave the firm and this cycle continues. I will also leave the firm soon as my training contract is going to complete. I always tried to teach whatever I have learned about time management to my juniors who would ultimately be working in my capacity in the future. So teaching anything to juniors is actually beneficial in the wider stake of the organization.
NO:8 Describe an occasion when you have identified an opportunity to improve departmental performance. There are different departments in the audit firm. I work for audit department for the most of my job tenure but also got the opportunity to work in Tax and Secretarial department. Especially in September and December, all the seniors of the audit department are transferred to tax department on provisional basis. September 30 is the deadline of filing income tax returns for the individuals and partnership businesses and the December 31 is the deadline for corporate clients. Reason of such transfer is the work load in the last days of filing the income tax returns. I found that this problem of overload in the last days can be sorted out.
How did you contribute to developing the opportunity for improvement?
When I started working in the income tax department in September, I realized that the work pressure in the last days is due to the delay in receiving primary documentation from the clients. As these are individuals and small partnership businesses, they don’t keep higher professional accountants for keeping their records up to date. A lot of time of our people is spent in asking the clients to bring the required documents. They know that the deadline for filing income tax return is September 30, so sometimes they bring the required documents on September 29 and even in the first half of September 30. When most of the clients do it, staff of tax department is overloaded with work.
In order to counter this problem, I suggested the manager of the tax department to ask the individuals and small businesses to bring the documents up to September 15. Follow their requirement with daily phone calls and emails. Earlier, department starts calling and emailing the clients after 15 September, but I asked them to start this process with the start of September. Moreover, I also suggested changing structure of the professional fee of filing income tax returns. People who submit all their documents by the September 15 will get 20% discount, submission by 23rd September will charge them the normal fee but after this date, they will have to pay 50% additional fee. Both of these suggestions were approved and implemented in the next year.
Was this opportunity fully successful, why was this? If not, why not?
Yes, it was very successful. Almost 60% of the clients submitted all their documents in order to get 20% discount. 30% submitted documents a week ago to avoid 50% plenty. In this way, all the work was managed properly and we had to import only few members from the audit department.
NO: 9 Describe your role in managing a discrete assignment Although all the audits are discreet assignments in their own capacity but I will describe my role in a different assignment. It was a market research assignment performed in United Arab Emirates for a meat processing company named in Pakistan. This is a subsidiary of a Malaysian company which is going to install the largest meat processing plant in Pakistan. As they were intended to export the meat (chicken, beef and mutton) to UAE, scope of our work was to Identify the major meat importers in the UAE and the terms at which they import. Identification of major laws and regulations which may impact the export of meat from Pakistan and import of meat in UAE. Conducting meetings with the procurement managers of major hotels, chain restaurants and chain of departmental stores e.g. Carrefour to know about the potential customers’ expectations from the client. Conduct research survey with the ultimate customers to identify their requirements and preferences about different types of meats and different parts of each type. Analyze the impact of introducing a meat brand with Pakistani (A Muslim country) tag in UAE where most of the chicken brands are Brazilian. Feasibility study of operating hatchery and meat processing unit in UAE
My role was limited to different customers and managers of hotels and hyper markets about the trends of consumption of meat. For this purpose, our team stayed in UAE for almost two weeks. After the return, I was given the responsibility to prepare the
report for them which consisted more than 300 pages. How did you apply learning from your day-to-day role in this assignment?
I learned using different software for data processing in my job, my writing skills were improved because of frequent communications with the clients, managers and team members through emails, my speaking power had also been increased. All these things helped me a lot in performing my role for this assignment. What did you learn from the assignment that will help you in your day-to-day role?
Well there are so many things I learned from this assignment. The exposure to foreign country boosted up confidence in me. Interviews with so many people helped me communicate efficiently and effectively with employees and management of the client. I prepared this report on behalf of my firm which helped me in drafting better management and board letters in the future. Overall it was an assignment with lots of learning. NO:11 Outline your contribution to interpreting financial transactions or financial statements According to International Auditing Standards, it is mandatory to understand the entity, the industry in which it is operating and legal and regulatory requirements to conduct the audit effectively. Especially when you are working in internal audit department, it is very important that you understand the environment in which the entity operates. Financial statement analysis is a good source to understand the market trends and benchmarks. Either you are in internal audit or external audit, you can use the financial statements and financial transaction analysis to compare the company’s performance with the industry. It was Cement Company and I had to perform the audit of Finance Department of the Cement Company. First of all I downloaded the financial statements of all the listed cement companies in the country and computed ratios in the excel sheet. The financial statements of Safwa Cement Company were also added into the list for this purpose. Whole exercise of financial statements analysis was performed by me but it was reviewed by the Internal Audit Director who suggested some changes later on.
How has this interpretation helped your department or organisation?
Initially there were 10 companies in the comparison but later on I kept only those 5 companies which were near to Al Safwa Cement Company in production capacity, revenue, and type of operations. After that I compared following ratios with the industry and analyzed the reason of differences; I found small variation between Gross Profit Margin of industry and Al Safwa Cement Company but a large difference between Net Profit Margin. Reason of this is the high fixed cost of Admin, Selling and Financial Charges. Receivable recovery period was 16 days for Al Safwa Cement company and 77 days for the market. It shows good cash management by the Finance Department of the company. Similarly, inventory turnover period is also just 52 days for Al Safwa but for the industry, it is 377 days. Days in AP were 103 as compared to the industry benchmark of 93 which results in high prices by the suppliers. Fixed Assets Turnover of Al Safwa was 21% compared to industry (29%). Actually Al Safwa’s plant is just 3 years old and the net book value of assets is relatively high as compare to the industry. This is why this ratio was a bit understated. Interest Cover of Al Safwa is just 5 while the interest coverage of industry is 33. It shows that Al Safwa is relying too much on the interest bearing loans and there is a huge risk of turning this profit into loss. This financial statements analysis helped our department to identify the risky areas where we need to concentrate more for the purpose of audit. What business decisions have or could be made based on this interpretation? While auditing the Finance Department, we found that one contract of operating lease was made with the contractor. This was the contract of 16 luxury cars as a result of which company had to pay USD 2.6 million for the cars in 4 years. I made financial analysis of the contract and found that if company goes for the finance lease, there can be net saving of USD 467,000/-
This finding was added in the final audit report of finance department and after two months, the operating lease was cancelled a new contract is signed with the bank for finance lease. N0:12 Explain your role in preparing financial information for management When I was working in the accounts department of an agriculture company, I used to
provide much financial information to the higher management but I would like to discuss one of them. It was an agriculture company and profit centers of the company were actually the circles (fields) from where yield (output) is received. In our company, there were 120 fields all around the area and I had to keep the track and record of raw material, spare parts, other related inventory, finished goods, goods sold, goods destroyed of each and every circle. It was not an easy job since there were almost 50 types of only raw material and I had to keep record of all the raw material issued to any circle with the related cost. These analyses were later on used to compute the cost per finished goods item (bale) from each circle. I used to report to higher management on monthly basis.
Identify some examples where you have had to investigate the information to ensure its validity and why this had to be done · As I have already mentioned, I had to keep record of the entire inventory issued to each and every circle, sometimes these figures were not reconciled. For example, according to the data received from the production department, seeds planted in each circle were giving a different accumulated figure from the actual issue of seeds from the store. In order to reconcile this, I had to go to the store to reconcile the data received from the production department with the store issue vouchers.
I had to keep the record of finished goods as well. Finished goods were in the form of bales which are perishable in nature. It used to happen many a times that the stock you can find in the excel sheets is not actually available on the circle. So, accounts department used to perform inventory count at every quarter end to write off the stock in the books. How have you in your role personally improved the quality of information you provide for management use? When I joined this company, there was no such type of reporting in the company. Finance department used to report to the management on overall basis about the inventory issued and cost of production was computed by taking into account many assumptions. The cost of production and cost of sales was actually volatile to human intervention. When I joined the company, I started giving the information in a detailed way to the management which was very beneficial in the following way;
· Cost of production and cost per bale of each circle was available to the management through which they could easily identify the circle which is giving better production.
If there is change in the average cost of production per bale in any month, management could easily identify that this change is because of the change in production cost of that particular circle. It was only possible with this detailed information provided to management.
· Different agriculture engineers were responsible for different circles; higher management could identify that which engineer is actually giving better results in terms of increased production and lower cost. · If one engineer (normally one engineer is responsible for 10 circles) is giving better results than the others, higher management could easily identify the reason of his better results. If he is giving more fertilizers to the circles or the differentiating factor is water supply.
NO:18 Explain your role in evaluating and reporting on audit assignments
Most important objective of the audit is to report on it. Auditing standards provide a format and guidelines on these issues. When we go to the audit, we are also devised with the responsibility for designing the audit report before manager review. Normally the person who is charged with the responsibility to lead the audit team drafts the audit report. I have also drafted many audit reports and three of them were qualified reports.
If the audit report is drafted by someone else, we have to see that all the matters which you have been taken into account have been considered. Moreover, we also have to consider that the affect of uncorrected misstatement is actually material or immaterial as assessed.
Using examples, what factors and issues have you uncovered through work on drafting audit reports?
Audit report is modified if material misstatement arises or auditor is unable to obtain sufficient appropriate audit evidence in any way. We audit on accounting head to head basis and note down all the misstatements in every head separately. At the end, the aggregate affect of these uncorrected misstatements is considered. If it is material, audit report is modified and vice versa. If audit report is unmodified, there is no problem in drafting it. You just need to change the name of the client and words (profit or loss) in it. But if the audit report is modified, we draft it very carefully. Moreover, the contents of audit report also change too frequently. For example, there was no “other matter paragraph” some years ago and there was no need to write “basis for “qualified” opinion” some years ago. So, we also have to consider the impact of these amendments in the standards.
What have been the business benefits of your reports?
A large community of stakeholders relies on the audit report issued by the firm. Shareholders who have invested their money in the company, would like to see the actual performance, in the absence of the audit report, almost every shareholder would be employing some auditors in order to secure his interest in the company and to obtain the actual position of the affairs of the company. Employees who have to obtain benefits from the company also rely on the audit report. Many potential investors, customers and suppliers also make the decision on the basis of the audit report and audited financial statements. No:20 Outline your responsibilities in assisting with tax planning
As I mentioned earlier, in September and December we were assigned to tax department of the firm. I gained expertise in Income Tax matters (Both corporate and non-corporate), including determination of taxable income and calculation of tax liability and preparation and filling of income tax returns in accordance with Income Tax Laws of Pakistan. I am involved in tax planning of both corporate and noncorporate persons.
How could some of the work you have done contribute to providing advice in other situations?
Tax laws of Pakistan are very complicated. It has been observed that the tax liability of the clients can be reduced significantly by making proper tax planning. So we decided to segregate our clients according to industries. There are tax credits available to individuals and corporate persons on the investment in the shares of listed companies, donations to approved NGOs, contribution to pension schemes and investment in mutual funds. Moreover there is no inheritance tax in Pakistan so one can reduce his tax liability legally by the transfer of the property under inheritance. Gifts are also exempt from taxes. We advise our clients in such a way that they have to pay minimum tax even after disclosing their full income. After making small groups of our clients we worked on each and every client and made a proper plan for them to reduce the tax liability.
How did your work improve the financial position of the company?
We handed over this planning to our clients with the set of instructions to implement them. In order to ensure the proper implication, we review their process on quarterly basis. If client is not following the plan in correct way, we identify the problems and suggest them the ways to apply the planning. Without tax planning companies and individuals both have to pay lot of taxes. These taxes are saved because of our planning and better supervision. In this way, company can use this money for better plans and invest it further. Hence, the financial position of different companies is surely improved due to tax plans devised by us.
